Compare Social Trading Networks

Are you into social trading? Welcome to our comprehensive social trading guide. We have been covering the topic regularly since inception, and have invested hundreds and thousands of hours into compiling the best reviews and assisting our reader to find all the data they could ever need to make a concise selection on a social trading broker for copytrading. View our comprehensive comparison below:

Social Trading allows traders to connect with other traders allowing them to share ideas and automatically copy one another’s trading positions (copytrading). Social trading has grown massively in popularity over the past few years, as it allows those without significant trading experience the chance to make money off the financial markets. Of course social trading is not without risks, but many have still embraced the new phenomenon with some traders reporting impressive returns. Of course those sharing the signals and trades with the rest of the users have the potential to make additional income in the form of commission paid out by the social trading network. While the social trading services make money themselves by providing brokerage services or alternatively partnering with already established brokerages.

Broker Independent vs. Own Broker

Social Trading networks generally operate one of two business models. Some social trading networks act as both a broker and a social trading network, which means users of the network ultimately place their trades with the network. The best example of such a model is eToro, who offer social trading functionality as well as acting as a brokerage to their clients. This means that all the costs involved with trading are calculated into the spread which means traders typically do not face any commission or management fees. On the other hand traders are unable to choose the brokerage they prefer and are instead stuck with the networks own brokerage.

Other social trading networks are broker independent which means that they simply provide social trading services and partner with a number of brokerages. When this is the case the social trading either charges the partnered brokerages commission or enters into an Introducing broker arrangement whereby the network is rewarded on how much volume they bring the brokerage. Broker independent social trading networks allow traders to choose between a range of different brokerages, meaning that traders can shop around for the best spreads. It should be noted that broker independent networks often charge users a commission which can make them just as expensive to use as social trading networks relying on their own broker. Additionally when using a social trading network which is not directly integrated with a brokerage, you may on occasion experience less than perfect execution.

Comparing Costs

When picking a social trading network to use it is well worth spending some time comparing costs. A difference of 1 pip per trade may seem relatively insignificant but over the long run these small differences add up. That’s why it’s worth working out how much cost you will incur per trade and working out which network will be the most cost effective. In addition costs vary between brokerages and its worth finding out which brokerage is the most competitive when it comes to spread and commission structure. For instance brokerages partnered with ZuluTrade differ significantly when it comes to how much commission they charge their customers on CopyTrading versus normal trading.

Signal Providers/Trader Quality

Different trading networks often have a different quality or range of signal providers, which means it’s worth checking out the signal providers on the platform before depositing. While social trading networks require signal providers to meet certain standards in order to receive commission for sharing their trades, many of these signal providers still engage in rather risky strategies. Again the larger the social network the wider range of individuals you can follow, which means users can pick from a wider range of signal providers. Some of the smaller trading networks don’t have quite the same comprehensive user base which can make it more difficult to find suitable signal providers.

Minimum Deposits

As noted in the above table, different social trading networks have different minimum deposit requirements. This is largely due to the fact different networks cater to different audiences, with networks such as Currensee primarily targeting high net worth individuals. While it is possible to start social trading with as little as $50, it is probably not recommended as traders will risk being severely undercapitalized especially if they don’t implement proper risk management.

Demo Accounts

As you can see the majority of social trading networks offer copytrading users the ability to try out the service with a demo account before trying out the service for real. This allows you to see how the service performs before parting with your hard earned cash; however there are certain circumstances where demo and real performance can differ. Demo orders often fulfilled with no or limited slippage which can mean that demo account performance is not truly representative of using the service for real. It’s certainly worth trying out a demo account before trying out the service for real, as it gives you an opportunity to browse the platforms users and see whether there are quality signal providers on the platform worth following.

Further Read

Why is social trading attractive?

It should be pretty clear why social trading is so attractive. As it gives those who don’t have trading experience to make money from the financial markets. Removing many of the barriers of entry to trading the financial markets, prior to the rise of social trading in order to have any chance of making profit from trading one would have had to spent a significant amount of time getting to grips with the ins and outs of trading. This is why social trading products have attracted many new traders, who would have not previously considered trading the financial markets a viable option. Of course as with any type of trading there are significant risks involved, with it being possible to lose some or all of your initial investment. However, many of the big social trading platforms have developed and continue to develop risk management tools allowing a trader to decide how much risk they want to take on.

Does Social Trading work?

This is a question that many who learn about social trading initially ask and with good reason as it does appear that social trading seems to good to be true. While their are obviously risks involved with any form of trading, it does appear possible to make some serious returns from social trading. A while ago, I wrote about an experiment I undertook with the ZuluTrade platform which saw my demo account make a 9.6% return in the space of a month. The same kind of feats seem possible with other social trading networks, with many people reporting positive experiences with platforms such as eToro and Tradeo. Approached in the right way then it does definitely seems possible to make some decent returns from engaging in social trading.

Social Trading Regulation

The Current State of Affairs: CopyTrading is a huge growth area and numerous social trading solutions and networks have sprung up to tap into the increasing demand from retail customers for social trading functionality. While many of the larger networks and solutions providers are already regulated entities, however not all social trading networks are currently regulated in their own rights.

In order to operate within the lucrative US market social trading networks must be a regulated introducing broker, with copytrading providers ZuluTrade and eToro (prior to their withdrawal from the US market) both having achieved this status allowing them to operate within the United States. However outside the United States the situation is less clear and while a number of social trading networks are regulated by relevant regulatory authorities there is currently no requirement that networks themselves be regulated. In recent months there has been much speculation that European regulators will take a tougher stance on social trading which could lead to social trading networks being required to become regulated as investment services providers.

Possible Future Developments: Essentially social trading involves an individual following certain traders or signal providers giving them a chance to piggyback on the trading successes of others. While users are often able to dictate their own risk parameters and stop following signal providers at any time, when copying another trader their capital is being actively managed.

A circular released last year by the European Securities and Market Authority (ESMA) discussed whether social trading services should be categorised as investment services. The circular from the ESMA concluded that if the instruments feel under the EU’s Markets In Financial Instrustments Directive (MiFID) then social trading networks would require regulatory authorization as they would count as a form of portfolio management.

Opinions released by the ESMA aren’t law but rather provide a framework for European regulators when they create and implement new financial regulation. These opinions could potentially lead to European regulators to conclude that social and mirror trading services ought to be regulated. This could potentially lead to the smaller unregulated entities being excluded from certain lucrative European market places, with there being much speculation that the UK’s Financial Services Authority may be the first to regulate the provision of social and mirror trading services.

The opinion of the ESMA has led many to believe that it is only a matter of time before domestic regulators implement specific regulation regarding the provision of social trading services, this isn’t necessarily the case. Regulatory opinions released by EU authorities aren’t always heeded by domestic regulators who aren’t required to implement such opinions into domestic regulatory law.

For instance in 2012, the European Commission ruled that Binary Options fell within the definition of a financial instrument as outlined by MiFID. Since then only two domestic European regulators with Cyprus’s CySEC and Malta’s MSFA choosing to regulate Binary Options as a financial instrument. Whether domestic regulators decide to take specific action on social trading remains to be seen and there is no clear evidence that they will.

Regulation Summary: In the US those looking to offer social trading services (copytrading) must at least be regulated as an introducing broker, the situation in Europe however is less clear. While a number of social trading networks and services are already regulated by relevant European regulatory authorities there are still a number of networks which have gained such regulation. If domestic European regulators choose to implement the opinions of ESMA, then the current state of social trading regulation could be radically overhauled. Ultimately, it will come down to whether social trading services are deemed to provide portfolio management services to their users.